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Stress Testing on Private Commercial Banks in Bangladesh

One of the most reliable and well-liked methods for signaling bank management of negative repercussions associated to possible threats is stress testing. It also depicts how much capital adequacy ratio (CAR) may be required to absorb losses if any substantial shocks occur. As per Bangladesh Bank standards, researchers conducted load testing on 10 Bangladeshi private commercial banks' non-performing loans (NPL), non-performing loans in two key sectors, equity price risk, liquidity shocks, and interest rate shocks in this article. Data from the annual reports of the chosen banks for the years 2016, 2017, and 2018 were used in this analysis. According to the study, all 10 banks in the years 2016, 2017, and 2018 need more capital due to the indicator NPL. In 2016, 2017, and 2018, Prime Bank was able to withstand NPL shocks in two crucial industries. Bank Asia and Jamuna bank were also able to do so in those years. In 2016, 2017, and 2018, four out of ten banks were able to surpass the shock threshold when it comes to equity price risk. Under the liquidity indicator, none of them can sustain operations in three years without additional financing. Finally, out of 10 banks, six banks do not need any more capital when the indicator interest rate is taken into account. The study also highlights certain extra CAR that the banks might enhance to withstand shocks. Finally, several intriguing study implications are demonstrated in this paper, which may be useful to senior management, decision-makers, depositors, owners, and other bank stakeholders.

Stress Test, Credit Risk, Non-performing Loan, Equity Price Risk, Liquidity Shock, Interest Rate Shock

APA Style

Kaniz Habiba Afrin, Md. Ashraful Islam, Md. Nahid Hasan, Md. Tota Miah. (2022). Stress Testing on Private Commercial Banks in Bangladesh. International Journal of Economic Behavior and Organization, 10(4), 89-99. https://doi.org/10.11648/j.ijebo.20221004.11

ACS Style

Kaniz Habiba Afrin; Md. Ashraful Islam; Md. Nahid Hasan; Md. Tota Miah. Stress Testing on Private Commercial Banks in Bangladesh. Int. J. Econ. Behav. Organ. 2022, 10(4), 89-99. doi: 10.11648/j.ijebo.20221004.11

AMA Style

Kaniz Habiba Afrin, Md. Ashraful Islam, Md. Nahid Hasan, Md. Tota Miah. Stress Testing on Private Commercial Banks in Bangladesh. Int J Econ Behav Organ. 2022;10(4):89-99. doi: 10.11648/j.ijebo.20221004.11

Copyright © 2022 Authors retain the copyright of this article.
This article is an open access article distributed under the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/) which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

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